Research Suggests Tether Inflated Bitcoin's Price
In a research paper published today, authors John M. Griffin and Amin Shams from the Department of Finance at the University of Texas claim to have found a link between Tether and Bitcoin that shows market manipulation on the later. Market manipulators have used the Tether USDT token to artificially inflate the price of bitcoin for the recent bull run at the end of 2017.
Tether is a stablecoin that is allegedly backed by the USD in a 1:1 ratio for each token created. This requires finding banking partners and achieving regulatory compliance to offer fiat-to-crypto trading pairs. Tether becomes a proxy for physical USD.
Griffin and Shams argue that Tether has been used to provide price support for bitcoin during market downturns.
Overall, we find that Tether has a significant impact on the cryptocurrency market. Tether seems to be used both to stabilize and manipulate Bitcoin prices.
[w]e are able to establish that entities associated with the Bitfinex exchange use Tether to purchase Bitcoin when prices are falling. Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention. These effects are present only after negative returns and periods following the printing of Tether.
It's possible this is just a correlation based on honest trading and practices, but researchers suggest that Tether is not always backed by a 1:1 ratio of USD for each token created. I've been told before that the amount of Tether that exists exceeds the USD backing those coins actually have through exchanges. This research seems to back that up.
Tether seems to be issuing unbacked tokens to help provide support for bitcoin and prop it up in the markets. They buy bitcoin to make the price spike, then later at the end of the month BTC is sold to fully back the outstanding USDT.
Tether is coming under the eye of federal regulators. The US Commodity Futures Trading Commission apparently sent a subpoena in December 2017 to Tether and the closely affiliated crypto exchange Bitfinex. The authors of the research indiate that surveillance and monitoring of the crypto markets "may be necessary to obtain a market that is truly free" in order to prevent "dubious activities" and "price distortions":
These findings suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free. More generally, our findings support the historical narrative that dubious activities are not just a by-product of price appreciation, but can substantially contribute to price distortions and capital misallocation.
It seems like they are recommending more oversight, i.e. regulation and control, over the cryptocurrency markets in order to keep things honest. Since most if not all of the trading is done on exchanges, regulators and law-makers can interject their authority into the exchanges to prevent market manipulations. But what other controls are they going to apply? Is this a sign of the dying dream of crypto freeing us from the clutches of the system?
References:
- Is Bitcoin Really Un-Tethered?
- Tether Used to Manipulate Price of Bitcoin During 2017 Peak: New Study
- Tether Manipulation Pushed Up Bitcoin's Price, Researchers Find
- Researchers Reach Obvious Conclusion That Bitcoin's Price Was Artificially Inflated
- Bitcoin Price was Manipulated by Tether, Researchers Claim
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This will only help the current bear market to continue.
Prices are looking ugly, but I think summer might be a factor causing this? Perhaps a lot of people are cashing out some cryptos to take nice vacations?
Either way, these days have been really bad price wise.
I thought the summer was supposed to bring a bull rising :P
The rest of your article explains why the CFTC are the good guys in this case, and BitFinex are bad.
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I'm just amazed someone with the last name Shams got a Finance job anywhere. Then again... people still think Tether is crypto...
I knew a chiropractor once name "Dr. Pain." He was a good doc too supposedly. ;)
hahaha
I still don't understand. If "they" print more USDT, w/out any $'s to back it, then who are "they?" Bitfinex? Not sure this is enough to explain the run-up by itself. BTC volumes even today are in the multiples of billions of dollars. Each fresh issuance of USDT is nowhere near that on any given day, especially on only one of many exchanges. Something smells fishy here w/this research....
That's interesting, maybe it's a bogus hit piece :/
Just sayin. ;)
I resteemed your post so that I may see it again. This is very valuable information from the perspective of every crypto enthusiastic. Many people say that one day cryptos will replace fiats. Will cryptos replace fiats in this way? Will these scams ever end? I don't think because it won't happen till cryptos are not made free of scams and ponji schemes. Till now real life application of cryptos are very few. This should be changed. First of all we need decentralized crypto currency exchanges where one can buy and sale cryptos without any hesitation.
Yeah, no regulation can hit it because it' snot centrally owned and in one jurisdiction :) Bitshares is a decentralized exchange.
tether is snake oil in token form, causing manipulation with their printing , pushing prices beyond points they shouldnt have reached that soon. I remember last summer I was thinking oh we'll stay around 4,000 probably and then things just moved so quickly to the point where It made me very suspicious
Yeah, I tend to agree :/
As long as there is no physical asset backing crypto currencies,they will resemble the stock market in many ways.
if you consider it from an investor angle, a token is the stock of a blockchain company. their performance must be tied into the value of the stock. right now there is no correlation. you have millions of small investors and a few large speculators. the price is being controlled as there is no reason for it to go up or down.
It's value is in the performance of the chain in some cases where there is a use case or service. BItcoin service and other crypto is is the service of another asset, money, that people value by what their willing to pay for it. There is nothing backing it like labor of a national currency indeed, That's why I have had issues with crypto in the past.
you are right that there is a service that is being provided today. it is a mutually agreed service. the problem is not in the service itself, it is in the perceived value of the service. e.g. we agree that the service of bitcoin is money (spending and receiving). but that agreement is incredibly transient w.r.t. the value of the service. that does not seem correct.
if collective agreement drives value and there is no evaluatable basis for the "agreement" then we have speculation. frequent annoucements that bitcoin's value will be 100K or some such number does not help at all. in fact it serves to stereotype all crypto currencies as having grossly inaccurate valuations.
come to think of it, there is another danger looming with the main contention of bitcoin being non inflationary, its value is like digital gold and hence it will climb to some unimaginable value. so whats wrong with this statement, after all gold is gold, right?
the problem is that bitcoin is caught between Scylla and Charybdis. if it becomes too expensive, it has lost its purpose. if it becomes too inexpensive and achieves mainstream usability, it will lose its fans and hence the perceived value.
the answer is probably the evolution of universal worldwide crypto currency as the only monetary system but then we will be back to inflation and internecine controls!
Once the banks control crypto, then the world repeats itself. so it is healther for us to keep bitcoin at affordable levels to cut speculation and increase its usage so that a parallel economic system develops to full maturity and where governments are also stakeholders rather than controllers.
In my opinion at this moment this news is really sounding like an speculation or manipulative action to showcase that Crypto is manipulative and it's not the future. But reality is different and many are experience the good change due to Crypto Economy and in future we will going to hear many aspects which can try to influence our perspective. But in my opinion this is the time when we have to HODL and have to keep faith on the Crypto and we are currently experiencing the Red Market due to weak hands and sell off from big holders.
Centralised entities are feeling the heat and in my opinion before the speculative news towards Bitcoin and whole Crypto market inturn worked for Crypto market but this time everything is silent, and silence always speaks louder than words so, possibly in Crypto Sphere we are facing silent manipulation.
Thanks for sharing this post with us and wishing you an great day. Stay blessed. 🙂
Yes it could be a hit piece. Hold and hope for the best :)
Yes, let's hope for the best. 🙂
The controversy around tether has been going on quite a while, maybe your last statement is the lesson here that crypto markets are not all black or white in regards of regulation and institutional meddling...
I watched analysis of Crypto Kingdom. Manipulation is obvious and on-going from the graph. However, it is used to keep Bitcoin in the same corridor instead of causing it to skyrocket or fall swiftly. This was in May, I am not sure what graphs say today though. But manipulations happen and are possible.